If your home's equity (value) has been building over time, a cash-out refinance allows you to turn a portion of that equity into cash - cash you can use however you want. Home improvements, unexpected medical bills, a child's college education, or even a luxurious vacation you've always dreamed about are all realistic possibilities.

So how does a cash-out refinance work? Let's say you owe $100,000 on your home, but its value on the market is $150,000. That means you've generated $50,000 in equity. A cash-out refi lets you use part of that equity and receive cash in exchange. You would have a new mortgage at a higher amount, but lower interest rates and shorter terms could still offer significant savings over time.

Now to the real question: when is the best time to take advantage of a cash-out refinance? The answer is really up to you and depends on your needs. The most popular reasons to utilize a cash-out refi are to:

• Remodel or renovate your home

• Consolidate multiple loans at a lower rate

• Pay off auto loans or other debt

• Settle any unexpected medical expenses

• Make real estate or other investments

• Accommodate a growing family or other life events

• Take the trip of a lifetime

Other potential benefits

Easier Qualifications? Because you already own a home, have a payment history established and your home's value is now more than you owe, it's typically easier to qualify for a cash-out refinance than other types of loans.

Tax Deductions - mortgage interest is tax deductible*. Plus, there are some costs associated with closing fees that are also tax deductible. You could even benefit if you pay off some tax-deductible debt with the cash you would receive from a cash-out refinance.

Better Rates - many lines of credit have an adjustable rate attached to them, while a cash-out refinance does not.

Possible drawbacks

Closing Costs are fees you will have to pay with a cash-out refinance. While there may be many cash benefits, make sure to include closing costs in your evaluation.

Longer Term - it's typical with a cash-out refi to reset your mortgage to a longer term than your original home loan. That means you will extend your mortgage beyond the original term.

Higher Rates - your cash-out refi rate may be lower than your current mortgage rate, but you may get a higher rate than a traditional refinance.

All of this is to say, that only you can decide when a cash-out refinance is a good option for you. It can be a smart financial decision and a great way to pay off debt or pay for home renovations, or it may be something you want to consider in the future.